Falling shipping freight rates for transporting containers from Asia to Northern Europe on Friday showed there was no traditional surge in cargo exports from China ahead of the Chinese New Year, indicating a bleak outlook for the industry.
Spot freight rates on the world’s busiest trade route have halved since the start of the year after falling 26 percent to $545 per 20-foot container (TEU) this week — a level not considered to be commercially viable for most vessels.
Container rates usuaally rise ahead of the Chinese New Year, which this year begins on Feb. 8, as companies try to ship goods to Europe before factories close and millions of workers travel home to celebrate for at least a week.
Last year, considered to be a bad one for shipping, average freight rates were $1,098 per TEU ahead of the Chinese New Year and $1,659 per TEU the year before. Rates this year for Asia to Europe have averaged $739.
Freight rates for Asia to the Mediterranean fell 27.6 percent this week. Rates for freight shipped to the U.S West Coast and East Coast were down 2.8 percent and 1.5 percent respectively, a source with access to data from the Shanghai Containerized Freight Index told Reuters.
Most container shipping companies are running with negative margins on their earnings before interest, tax, depreciation and amortisatio), and greater industry discipline on rates must be enforced, Scandinavian bank Nordea wrote in a note to clients last week.
“We argue that the current rate level is unsustainable, even when adjusting for lower bunker (fuel) costs,” Nordea wrote.
Maersk Line, the world’s biggest container shipping company with more than 600 container vessels, in November reported a 61 percent drop in third-quarter net profit.
The Danish shipper controls about a fifth of the containers transported from Asia to Europe.
Global sea-borne trade is highly dependent on global growth. The International Monetary Fund (IMF) this week cut its global growth forecast for the third time in less than a year.
The Fund forecast the world economy to grow by 3.4 percent this year and 3.6 percent in 2017. Both forecasts were down 0.2 percentage points from the previous estimates made in October.
(Reporting by Ole Mikkelsen; Editing by Sabina Zawadzki and David Goodman)